View from Europe: Is India's return to protectionism going under the radar?

By focusing on the US/China trade war, Europeans are missing the rise of Indian protectionism, writes Martin G Kaspar.

European papers are full of stories about the ‘US-China trade war’, about US protectionism and Chinese counter-measures. And while all of this is indeed an alarming departure from the open, globalised world we knew, it is important to remember that none of this has (yet) materialised. For the moment, it is still only posturing.

Meanwhile, however, another country is quietly and discreetly creating facts. During his 2018/19 budget speech, Indian finance minister Arun Jaitley announced in his soft-spoken and innocent way that India would make “a calibrated departure from the underlying policy in the past two decades… to reduce customs duties”. In reality, this is a bombshell.

In order to protect its domestic industries and to further job creation in India, the government is jacking up import duties, in some cases by 50% or more. Import duties are being increased on a broad range of products from mobile phones to sunglasses, toiletries to TVs.

This story of Indian protectionism is surprising for three reasons.

First, and most important, it is hard to comprehend, particularly given India’s recent history. For decades Indian firms were protected from foreign competition by impenetrable FDI rules and import duties. For India as a country, however, the most observable outcome of these policies was decades of stagnant development, slow growth and lack of progress. When India started to dismantle its customs and duty walls and eased rules on FDI around the turn of the millennium, a growth story more or less on par with China’s began. There are few countries where the correlation between ‘opening up’ and growth is as clearly observable as India.

Second, prime minister Narendra Modi, while presenting himself as an outspoken opponent of protectionism and a champion of open markets, presides over the implementation of these very measures only months after his statements had been made to rapturous applause at the World Economic Forum in Davos.

Third, and most surprising, no one seems to be taking any notice.

Western papers are still full of Trumpian duties on German cars, which so far have not happened, and ignore duty hikes that have. They still discuss normative ideals (that we ought to keep markets open) but rarely engage in an analysis of the status quo. With exports to the US, China and India a challenge for a variety of reasons, Europe will need to weigh its actions carefully.

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com

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